Despite California’s Troubles, Texas Won’t Eclipse CA’s Economy for These Reasons

It’s a popular sport these days for commentators and the citizenry alike to talk up the state of California’s demise amid the rise of Texas. Given the former’s nosebleed rates of taxation, its looming bankruptcy (the two aren’t unrelated), and the regular outflow of Californians to the Lone Star state (and its 0% income tax rate), the easy thing to do would be to join the anti-California mob.

But as someone who grew up in southern California, yet proudly attended the University of Texas at Austin (’92), it seems more worthwhile than ever to offer up a contrarian view that bucks a growing consensus. While Texas is most certainly booming amid California’s very apparent troubles, the mere notion that it will eclipse California anytime soon is about as realistic as Texas abolishing high school football. Texas isn’t about to turn away its #1 pastime, and California isn’t about to fall behind Texas.

On the industrial front, while it’s doubtless true that Texas can lay claim to being “oil rich”, and as such, full of the world’s most talented petroleum engineers, California is hardly poor in that regard. Indeed, to the extent that California isn’t “energy independent”, that has to do with silly rules against securing its vast reserves, not to mention that California’s most productive citizens are pursuing higher-margin work as evidenced by more Forbes 400 members residing in California than any state in the Union.

Of course after energy, in seemingly every other industrial area California trumps Texas. Its entertainment industry is the foremost in the world, which means that actors, directors and producers alike – including many Texans – know that to truly be great, they must prove themselves on entertainment’s largest, very Hollywood-centric stage.

Less profitable than entertainment, no region in the world and no state can measure up to California’s wine-making Napa Valley. So successful and enterprising are California’s citizens, and so good is its weather and soil, Californians seemingly as an afterthought went out and created the world’s most celebrated wines; even impressing the world’s most notable wine snobs in France in blind taste test after blind taste test.

Regarding computers, Austin can claim Dell (NASDAQ:DELL), and Houston at one time Compaq, but the latter was swallowed by California-based Hewlett-Packard (NYSE:HPQ), and in recent years HP (NYSE:HPQ) has cleaned Dell’s (NASDAQ:DELL) clock as evidenced by the direction of each company’s share prices. Looking at the defense industry, it was largely California-made weaponry and a President (Reagan) from California that ultimately forced the Soviets into an implicit surrender; Reagan’s defense buildup necessary after the national loss of confidence that to some degree occurred on a Texan’s watch.

Considering technology (NYSE:XLK), Austin surely stands out in that regard, but there the most flattering compliment laid on any area of technological innovation is that it’s a mini-Silicon Valley. So while tech types grew giddy about a now largely forgotten Austin-based firm named Trilogy in the ‘90s, California’s Silicon Valley has continued to incubate the best and brightest in the technology space, including modern giants such as Google (NASDAQ:GOOG), Facebook (NYSE:GS), Cisco (NASDAQ:CSCO), Intel (NASDAQ:INTC), Salesforce.com (NYSE:CRM), and too many others to list in one article.

Of course one reason that California can lay claim to some of the world’s greatest entrepreneurs and minds has to do with the tautological reality that no one will ever mistake UT-Austin, Texas A&M, Texas Tech, Baylor, and Rice University for Stanford, UC Berkeley, USC, UCLA and Cal Tech. Though education is vastly overrated on its very best day, the simple truth is that many of the nation’s smartest students routinely head to California for college, and when they don’t as was the case of Facebook founder Mark Zuckerberg, they often eventually head west when they drop out of Harvard, and other leading eastern centers of higher learning.

Considering climate and beauty, no one’s similarly ever going to mistake Austin and its 360 Bridge for San Francisco and its Golden Gate, not to mention that no amount of tax competition will ever place Texas beach communities such as South Padre Island, Rockport and Galveston in the same discussion as La Jolla, Laguna and Montecito. In California the energetic can ski and surf on some of the world’s best slopes and waves on the same day, while in Texas the former is a non-starter; the latter mostly attainable when some brutal hurricane strikes the Gulf.

Looking at restaurants, though Texans are doubtless and understandably restaurant proud, it’s rare to hear foodies (this writer decidedly not one) utter Tony’s (Houston), Jeffrey’s (Austin) and Del Frisco’s (Dallas) in the same breath as French Laundry (Napa), Postrio (San Francisco) and Matsuhisa (Beverly Hills). And while it says here that San Antonio-based Whataburger is unquestionably the greatest fast food chain in the world, California-based In-N-Out Burger devotees the world over would at least in this instance wrongly make the case for the latter.

Considering Texas’s claim as the center of football and sports more broadly, the Texas Longhorns (who beat USC in a legendary 2006 BCS Championship) are largely incomparable as football traditions go; that is until one measures their four national titles and two Heisman trophies (one of them won by a Californian on the team – Ricky Williams) against USC’s 11 and 7; 7 if you count Reggie Bush. Looking at basketball, though Texas today would likely demolish the UCLA Bruins, no one’s about to suggest that the Longhorns will ever match the Bruins’ 11 men’s titles. As for baseball, Texas and Rice can claim more than a few collegiate championships, but far less in total than USC (12) and Stanford (2).

Moving to the professional level, even there California holds all the cards. Not only can it claim more NFL players than Texas, but also more Super Bowl champions. Texas arguably has the grandest NFL traditional of them all with the Dallas Cowboys, but their five championships only make them even with the San Francisco ‘49ers, and the state itself falls behind when we factor the Raiders into the equation. In basketball, the Houston Rockets won two titles when Chicago Bull legend Michael Jordan unexpectedly took two years off, the San Antonio Spurs are a model of championship consistency, but combined they’ll never measure up to the Lakers’ myriad titles over numerous decades. As for baseball, the Dodgers, Giants, A’s and Angels and all their championships versus the Astros and Rangers in Texas? Enough said.

Arlington, TX can unquestionably lay claim to the world’s most advanced and awe-inspiring stadium built by brilliant Dallas Cowboys owner Jerry Jones (born in Los Angeles), but Texans will be waiting a long time before it matches Pasadena’s Rose Bowl for tradition, scenic beauty, and overall elegance. And once we compare the countless iconic events staged in the Rose Bowl against the truck pulls, underachieving Cowboy games and a flubbed Super Bowl of recent vintage that took place at Cowboys Stadium, a clear advantage for California turns into a rout.

So while Texas isn’t about to overtake California by any reasonable economic, scenic or sporting measure, it’s time that California’s voters and politicians wake up. Possessed of human and physical greatness in abundance, California became the land of opportunity within The Land of Opportunity precisely because it at least at one time celebrated the arrival of the ambitious, and its politicians treated them relatively well.

In more modern times, California’s legislators have fallen for the sad unreality that horrific levels of taxation correlate with booming revenues and balanced budgets. The result is an outflow of talent from the state seeking to avoid those taxes, and budget deficits that point to bankruptcy.

California is without question the nation’s most important state, and it was made that way by arguably the greatest collection of minds settled in one place in the history of the mankind. In that case, its voters and politicians need to ask themselves if it’s worth eventually driving away those greatest minds and talents in pursuit of economic policies that bat 1,000 when it comes to failure. This former resident thinks not.

John Tamny is a senior economic advisor to Toreador Research & Trading, a senior economist with H.C. Wainwright Economics, and editor of RealClearMarkets and Forbes.

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